Another record quarter for UK manufacturers

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The Independent Online

Britain's manufacturing sector is still growing strongly and will outstrip the rest of the economy in 2011, according to a closely watched survey to be published this morning. The Engineering Employers' Federation (EEF) reports record growth for the third consecutive quarter, with a balance of plus 33 per cent recording rising output and plus 32 per cent record levels of new orders in the fourth quarter.

The strong performance has pushed up the EEF's annual outlook estimates and the group is now forecasting 3.8 per cent growth in manufacturing and 1.8 per cent growth in the GDP this year. Next year's figures remain unchanged at 3.2 per cent and 2.1 per cent respectively.

"Manufacturers are ending the year on a high and should enter 2011 on a strong footing," Lee Hopley, the chief economist at the EEF, said. "If this continues, we should see exports and investment delivering better-balanced growth across the economy."

The benign climate is evident throughout all sectors of British industry, from metals to electronics to cars, and booming business is translating into a sharp increase in both hiring levels and investment, according to the EEF survey. New recruitment is showing a particularly large bounce, with a balance of plus 23 per cent of respondents reporting rising employee numbers, a record level since the survey began a decade ago.

But British industry is still far from its pre-recession condition. Although the three months to September saw solid output growth of 1 per cent, on top of the 1.5 per cent and 1.6 per cent expansion in the previous two quarters, total output is still nearly 10 per cent down on pre-recession levels. And even the sharp increases in employment and investment may reflect a flood of activity necessary after the slashing of budgets in the financial crisis, rather than a real rise in long-term confidence.

"The investment intentions and employment balances have pushed firmly into positive territory both for the last three months and in expectations for the next quarter," Ms Hopley said. "But there is still a question about whether companies are making the chunky investments for the long term and employing permanent full-time staff or just short-term agency workers."

There is also some softening of expectations, looking forward to the next three months, over concerns about the outlook for the UK economy in the face of swingeing government spending cuts, as well as risks in the global economy. Exports are already doing better than domestic orders, a trend which is expected to continue. And the number of companies planning to raise prices has jumped significantly, reflecting an increase in raw materials' costs.

The data on pricing will raise issues for the Bank of England's Monetary Policy Committee discussion on interest rates this week, Ms Hopley said. "The questions is whether there is the degree of spare capacity that the MPC members think will bring down inflation to target levels over the next few years."

The EEF survey follows upbeat findings from the Chartered Institute of Purchasing and Supply (CIPS) last week. The purchasing managers' index shot up to a 16-year high in November, boosted by rising exports and unprecedented hiring.